What Could Amazon’s Approach to Health Care Look Like?

Executive Summary

Whether pursuing the market for pharmaceutical distribution or teaming up with Berkshire Hathaway and JP Morgan Chase to create joint solutions for reducing health care spending of more than 1 million employees and their families, it is clear that Amazon sees the 18% of U.S. GDP dedicated to health care as fertile ground for expansion. It is worth thinking about Amazon’s efforts in a conditional manner: If Amazon succeeds in changing health care, how might it do so? While Amazon’s collaboration with Berkshire Hathaway and JP Morgan Chase would obviously leverage the purchasing power of three massive employers and could lead to innovative insurance models, it seems that the bigger opportunity would be in improving how care is delivered to patients. At its root, health care is a service that needs to be delivered to a customer. For existing health care companies, the operative words in that mandate have been “health care”; for Amazon, the operative words likely are “service that needs to be delivered to a customer.” To the extent that Amazon’s perspective is correct, it is worth considering the types of experience the company could apply to health care. They include several areas: making routine transactions seamless and reliable; passive data capture; data analytics; and turning efforts to solve internal challenges into businesses.

jamie jones/Getty Images

It is clear from some of its recent moves that Amazon sees the 18% of U.S. GDP dedicated to health care as fertile ground for expansion. Consider its decision to pursue the market for pharmaceutical distribution, or the recent announcement that it will be teaming up with Berkshire Hathaway and JP Morgan Chase to create joint solutions for reducing the health care spending of more than 1 million employees and their families.

This latest move has engendered robust debate. Proponents liberally term it “disruptive,” seeing a natural diversification opportunity for the company that has aspired to be “earth’s most customer-centric company.” Meanwhile, skeptics highlight Amazon’s lack of expertise in health care, a sector that many deem curiously resistant to the competitive forces that characterize the retail and web services markets in which Amazon has thrived. Given this state of affairs, it is worth thinking about Amazon’s efforts in a conditional manner: If Amazon succeeds in changing health care, how might it do so? (Disclosure: I own a very small number of Amazon shares.)

While Amazon’s collaboration with Berkshire Hathaway and JP Morgan Chase would obviously leverage the purchasing power of three massive employers and could lead to innovative insurance models, it seems that the bigger opportunity would be in improving how care is delivered to patients. At its root, health care is a service that needs to be delivered to a customer. For existing health care companies, the operative words in that mandate have been “health care”; for Amazon, the operative words likely are “service that needs to be delivered to a customer.” To the extent that Amazon’s perspective is correct, it is worth considering the types of experience the company could apply to health care.

Making routine transactions seamless and reliable. The introduction of Amazon Prime, which provides two-day delivery on many Amazon orders for a fixed annual fee, represented a huge shift in Amazon’s early business model. The move eliminated a key barrier to use for consumers, who no longer had to struggle to combine many items in a single order to save on shipping. Amazon has also brought similar forms of convenience to grocery shopping through the same-day delivery offered in large cities by its AmazonFresh unit. This expertise could be used to improve health care delivery by addressing the administrative hassle and scheduling challenges faced by patients seeking routine services in a one-stop setting.

Basic challenges associated with parking, waiting, and missed time at work cause many patients to either dread the process of receiving care or to forgo it entirely. Amazon’s acquisition of Whole Foods has given it a retail footprint that could conceivably offer, among other things, basic health care services that are found at retail clinics such as those offered by CVS MinuteClinic or Walgreens. Even if Amazon’s potential services in this regard were not unique, one would suspect that its history of being able to compete on price for the delivery of routine products and services would serve it well should it decide to move into the routine — but substantial — areas of health care delivery such as immunizations, blood draws, and strep throat cultures.

In addition, its broad distribution network aimed at same-day delivery in many markets (through Amazon Flex, its “Uber for delivery” service) may also make the immediate delivery of certain prescriptions along with one’s groceries or other products a reality. While it is not clear exactly which set of routine services Amazon would tackle in health care, it likely will not hurt the company to be able to offer those services as part of a broader package of conveniences that a customer can access with a single Amazon account.

Passive data capture. One of the most compelling (and, to privacy advocates, most concerning) aspects of Amazon is the wealth of data it can capture about the purchasing habits of each of its customers. What’s more, this data capture is passive and thus does not require consumers to enter much, if any, information to complete a transaction. While the capture of online data is a capability that Amazon has had since its inception, its recent move into cashier-less retailing with its Amazon Go store in Seattle offers a glimpse into the company’s potential for health care.

The Amazon Go store allows a customer to simply swipe their phone over a sensor upon entry and then relies on an array of sensor technologies to distinguish between the consumer actions of picking up a product, placing it in a cart, or returning it to a shelf. As customers shop, these movements are collected automatically, which allows Amazon to know exactly what is in a shopper’s possession as the shopper simply walks out of the store. The total bill for the shopping trip is automatically charged just like any other purchase on the customer’s Amazon account.

So where is the link to health care? My recent HBR article on information technology in health care highlights the magnitude of investments that hospitals are making in electronic medical records (EMRs) as well as the frustration that many providers are feeling due to the time they must devote to entering data into those systems. Similarly, many hospitals are also adopting real-time location systems to track the movement of people and equipment throughout their facilities. These systems can tell an executive precisely how much time each of the hospital’s operating rooms or inpatient beds is occupied with patients, or it can inform a provider who is running behind schedule exactly how long the next patient has been waiting to be seen.

These pieces of information, all of which are collected by the simple movement of people and equipment through established workflows, can be helpful in improving operational execution for the complex services provided in many health care settings. To the extent that the technology Amazon developed for Amazon Go can be turned to services beyond grocery shopping, health care may be one of the early beneficiaries.

Data analytics. By simplifying data capture, Amazon frees up resources to analyze that information for purposes of business intelligence. What are consumers purchasing and in what combinations? Which purchase decisions do consumers appear to labor over and which do they seem to make quite quickly? Turning that lens to health care data could be powerful, a point that has not been lost on the many companies already building analytic tools in health care.

As with retail clinics, the question again arises as to what Amazon could add over these existing firms. One potential answer is a wealth of integrated data that links an individual’s medical record with their overall purchasing patterns, genetic information (particularly if Amazon eventually does blood draws in convenient settings), and activity patterns. This type of data integration is increasingly sought after by health care delivery systems that are trying to target care based on a patient’s specific preferences or genomic information.

To that end, many health care providers are attempting to develop biobanks, which integrate a patient’s medical record with his or her genetic information (obtained from analyzing blood that remains after a patient undergoes routine lab testing) and behavioral or lifestyle data collected through a separate survey of the patient. Collecting such information can be onerous, requiring separate efforts that are often challenging to integrate. Given its current business lines, Amazon seems well positioned to eventually serve as a single point of integration for such sources of data. If so, Amazon could find itself as an outsourced supplier of IT services to the delivery systems that are currently trying to do this integration on their own.

Turning itself inside out. A final and critical aspect of Amazon’s expertise is the company’s willingness to turn itself inside out. Specifically, Amazon has a knack for translating its efforts to solve its own operational and organization challenges into future commercial products and services. Perhaps the most famous result of this willingness is the creation of Amazon’s cloud computing unit, Amazon Web Services (AWS).

AWS emerged from a 2003 strategic retreat at Amazon, during which executives noted the challenges that units at the company faced in having to “reinvent the infrastructural wheel” each time they initiated new service offerings. These executives agreed that if such issues were challenging for Amazon, they surely must plague smaller internet companies in an earlier stage of their development. That realization hatched AWS as a service that offered cloud computing infrastructure on a “pay-by-use” basis.

The absence of fixed costs for customers attracted small and innovative web developers. Over time, major companies — even those that had previously been able to secure infrastructure contracts with large cloud computing firms — began to flock to AWS. Thus although AWS still accounts for a relatively small portion of Amazon’s more than $175 billion in revenue, several analysts suggest that its profitability and growth potential account for over half of Amazon’s market value.

What was remarkable about the development of AWS was that, at the time of its introduction, Amazon did not necessarily know what AWS services web developers — who previously had not been corporate customers of Amazon — would most need or use. The beauty of the business model was that it did not need to know that. Rather, it let developers decide what services they wanted to use. Amazon then watched those usage patterns and adjusted its service offerings accordingly.

Health care is similar. Amazon has an internal challenge — managing the health and health spending of its employees — that is shared by many other companies. Yet Amazon likely does not have a full “solution” in mind just yet. Rather, it has ideas and hypotheses to test. By creating a space in which those ideas can be tested, Amazon may be able to play a key role in allocating resources to solutions that show themselves, over time, to be promising.

As the debate over Amazon’s potential to transform health care continues — including discussions related to the implications of Amazon’s overall growth for market competition and consumer privacy — it is important to acknowledge that the company’s path forward in this sector is marked by many uncertainties. To the extent that success in transforming health care requires a deeper institutional knowledge of health, medicine, and insurance, Amazon may face an uphill battle. If, however, the key to success lies in greater attention to operational execution, data analysis, and customer service, Amazon may find a significant opportunity.

Robert S. Huckman is the Albert J. Weatherhead III Professor of Business Administration at Harvard Business School, where he is the faculty chair of the HBS Health Care Initiative and chair of the MBA required curriculum.